Digital Agreements Can Boost Trade Across Asia and the Pacific

Digital transformation is reshaping trade across Asia and the Pacific, but regulation is not keeping pace. Countries are moving at different speeds, with overlapping or sometimes nonexistent rules, while new technologies outpace existing frameworks. 

If this situation is not addressed, vulnerable populations in the region risk being shut out of new job opportunities, affordable digital services, and financial inclusion. In short, the benefits of the digital economy may concentrate in wealthier areas and deepen inequality.

Digital provisions are increasingly embedded in trade agreements across Asia, but implementation and coherence remain uneven. While some countries have advanced frameworks for e-commerce, cybersecurity, or data protection, others are just beginning. The regulatory heterogeneity, or variation, creates fragmentation and raises trade costs, especially for smaller businesses.

There is a growing need for greater regulatory cooperation around clear digital rules with systems that are interoperable rather than strictly aligned. Flexible digital agreements can foster institutional know-how and help developing countries’ gradual integration into the digital economy.

Digital economy agreements could be key to addressing these issues. 

For example, the Digital Economy Partnership Agreement, an innovative agreement between Singapore, New Zealand, and Chile, and recently joined by the Republic of Korea, is paving the way for a new generation of such agreements. It stands out for its modular design, allowing countries to gradually adopt specific parts of the agreement based on their individual needs, priorities and readiness. 

This flexibility is especially helpful for developing economies that may not yet have the legal or technical frameworks in place. The agreement’s structure also supports adaptation to fast-evolving digital issues like AI governance and digital identity. It promotes cooperation on cross-border data flows, cybersecurity, and privacy protection, in a way that balances openness with national interests, allowing members to advance digital integration progressively, without requiring full alignment from the outset. 

Digital standards agendas need more voices from Asia and the Pacific. Without a common set of rules and protocols, even the best-designed digital systems cannot talk to each other. Standards make cross-border digital trade possible, allowing systems to work together smoothly and keeping things efficient.

Many of the region’s economies, especially smaller ones, are absent from global digital standards-setting. Participation remains limited and the private sector, often a key entry point to technologies like AI and 5G, has little influence in shaping digital standards.

Part of the solution lies in building standards directly into trade agreements and encouraging collaboration among governments, businesses, and standard-setting bodies. As a main player in the development of digital technologies, Asia and the Pacific should not be a passive adopter of digital standards, but contribute to shaping them. 

Digital economy agreements offer practical platforms – not just for setting rules, but also for building capacities of governments and firms to actively engage. They advance globally harmonized standards to reduce trade frictions and build trust in digital transactions. 

To help bridge capacity gaps, digital economy agreements go beyond setting rules. They also support initiatives that build the skills and institutions needed to shape global standards. The Digital Standards Initiative is one such effort, helping economies actively engage in standard-setting and reduce trade frictions.

Modernizing cross-border payments infrastructure is key. Digital trade requires more than platforms and policies. It also needs the right infrastructure. One of the weakest links is cross-border payments. In many parts of Asia, transferring money across borders remains expensive and cumbersome, especially for households relying on remittances or small businesses trying to expand.

Part of the problem is that payment systems across countries do not talk to each other easily. Regulations differ, data cannot move freely, and technical standards are not always aligned. On top of that, the region’s heavy dependence on the US dollar also increases vulnerability and limits the use of local currencies in regional trade.

Fixing this is more than creating better apps or e-commerce platforms. It requires modern, real-time payment systems widely accessible through mobile money and digital IDs, along with aligned rules for anti-money laundering, privacy, and interoperability to reduce friction and delays. 

Regional cooperation will be key for enhancing financial inclusion, linking payment systems, facilitating settlements in local currencies and strengthening resilience. 

Digital taxation must catch up to cross-border trade. Taxing digital transactions remains a persistent challenge. How do you tax a digital product sold by a company with no physical presence? Existing tax treaties and trade rules are not designed for an economy built on cross-border data flows and digital services. 

Most bilateral tax treaties fall short when it comes to adequately capture digital activities, and countries continue to differ in how they define and tax online transactions. This creates uncertainty for businesses and missed revenue for governments.

Adopting international standards, including those under the OECD’s Inclusive Framework, can help close this gap. Stronger data privacy laws and fostering closer collaboration between trade and tax administrations is also critical. 

Trade agreements can help create clearer, more coordinated rules for digital taxation across borders. And governments need to invest in digital infrastructure, skills, and international cooperation to modernize tax systems.

Ultimately, this is not just about raising revenue. It is about avoiding a race to the bottom. While some economies may have short-term incentives to act alone, the real gains come from collective action to create fair, stable tax systems.

Digital economy agreements can be a vehicle for regulatory cooperation and institutional development. But making them work takes more than signing on. It calls for sustained commitments, flexibility, and support for capacity building. 

This blog post is based on the publication The Role and Future of Digital Economy Agreements in Developing Asia and the Pacific.